Indian Banking After a Decade of Reform: What the EAC-PM Study Actually Tells Us

1. What is this paper trying to answer?

The study asks how efficiently Indian banks have converted their resources into banking outputs over the reform period, and how efficiency and productivity changed between FY2014-15 and FY2025-26.

It studies 47 banks — 12 public-sector, 21 private-sector and 14 foreign banks — representing more than 95% of the banking system's assets.

2. Why the period after 2014 matters

The paper places the analysis against the banking clean-up that followed the Reserve Bank of India's Asset Quality Review. The sector moved from recognition of stressed assets and weak capitalisation towards lower NPAs, stronger capital buffers, improved profitability and stronger credit growth.

3. What exactly is DEA?

Data Envelopment Analysis (DEA) is a non-parametric method for comparing the relative efficiency of decision-making units that use inputs to produce outputs. Here, the decision-making units are banks.

An efficiency score of 85% does not mean that a bank is “85% good”. In the paper's framework, it means the bank could theoretically reduce its measured inputs by 15% while maintaining the same measured output, relative to the efficiency frontier.

4. The central result

For the full FY2015-FY2026 period, the reported average technical-efficiency scores were 88.53% for PSBs, 85.62% for private banks and 88.98% for foreign banks. But the most striking movement occurs after FY2020.

5. The important nuance: efficiency ≠ productivity

This is one of the most important points to take away from the paper. Technical efficiency asks how close a bank is to the observed best-practice frontier. Productivity analysis asks whether that frontier itself is moving.

The paper also uses the Malmquist Productivity Index to examine productivity change and technology/frontier movement. The technology-related measure recovered to 1.0087 in FY2026 after falling to 0.7634 in FY2023. A value above 1 indicates an improvement in the relevant index.

6. Which banks stand out?

Over the 12-year period, HSBC and JPMorgan Chase maintained a 100% efficiency score in the study. Among private banks, HDFC Bank recorded a 97.54% average technical-efficiency score; SBI recorded 97.49% among PSBs.

The paper also highlights merger-related disruptions. DBS Bank India's low single-year score of 40.12% in FY2021-22 is associated with its merger with Lakshmi Vilas Bank in the analysis.

7. What does the paper say about consolidation?

The paper argues that India should consider further consolidation in a way that creates a few large banks of broadly comparable size while preserving competition. The rationale is that a growing economy will require banks with greater capacity to finance large credit needs.

But there is an important finding underneath this recommendation: only seven of the 47 banks were fully scale-efficient in FY2026, compared with 21 in FY2015. Bigger, therefore, does not automatically mean operating at the best scale.

8. The reform story the paper is telling

• Asset Quality Review brought stressed assets into the open.
• Recapitalisation strengthened bank balance sheets.
• IBC and other resolution mechanisms changed stressed-asset recovery.
• PCA and stronger supervision imposed discipline on weak banks.
• PSB consolidation changed the structure and scale of the public-sector segment.
• Digitisation changed operating models and customer access.

9. What should policymakers take from it?

The paper's results support the argument that the banking reform cycle has materially improved measured efficiency, especially in PSBs after FY2020. They also strengthen the case for thinking about scale and technology as strategic issues.

However, efficiency should be read alongside financial inclusion, service quality, competition, cyber resilience, asset quality, credit allocation and systemic risk. A high DEA score cannot answer all of those questions.

10. The talking points

1. PSBs recorded 93.12% mean technical efficiency in FY2026 versus 86.02% for private banks.
2. PSBs' improvement after FY2020 is the paper's most striking result.
3. Foreign banks had the highest full-period average, but their efficiency declined substantially from the beginning of the period.
4. DEA measures relative input-output efficiency; it is not a universal “bank quality” score.
5. Technical efficiency and productivity are different concepts.
6. Only seven of 47 banks were fully scale-efficient in FY2026.
7. Bank mergers can create short-term integration and rationalisation effects in measured efficiency.
8. The paper supports further consolidation, but competition must be protected.
9. Digitisation and AI are presented as future drivers of banking productivity, not as causal findings established by this DEA exercise.
10. The paper describes a banking sector that has moved from balance-sheet repair toward financing a broader growth cycle.

11. Exam angle

12. Questions worth asking

Does higher measured efficiency prove that PSBs are better than private banks? No. It answers a narrower question about the selected inputs, outputs and efficiency frontier.

Does the paper prove that mergers caused the improvement? No. The study observes performance around a broad reform period; it does not isolate the causal contribution of each reform.

Does the paper prove that India needs more mergers? It provides an efficiency/scale-based argument for consolidation, but the wider policy question also involves competition, concentration and financial stability.

Bottom line

The most interesting thing about the paper is not simply “PSBs beat private banks”. It is the change in the trajectory: after the banking-sector stress exposed by the AQR era, PSBs show a large recovery in measured technical efficiency. The more consequential policy debate is what comes next — whether India can convert that operational improvement into sustained productivity, better credit allocation and globally competitive banks without sacrificing competition.